232
L = l, end = and, ffl = m, etc; see intro on scan fuzz(Annals, 1934 p 76, (index:
futures ). Even according to current views, short sales are contracts that
the law should recognise w h e n a premium (forfeit money) is agreed, upon
payment of which the vendor cen free himself from his obligation to deliver.
The law should therefore provide premiums for all cases where the contracting
parties have not themselves stipulated them. If, for example, gold coins
have been agreed on as the means of payment, this should be renarded as
a short safe of gold coins by the debtor end the debtor should be entitled
to supply on pay-day his own purchasing certificates in lieu of gold coins,
teut with an extra that would satisfy the creditor Should the creditor
refuse to accept current but unforced means of payment such as State paper
money, of which he must give proper notice, the debtor should also be entitled
to provide purchasing certificates issued by him, teut this time with a
decidedly diminished extra or with none ( Compare plan 110, page 37 The
Ed. )The existing
L a w o f e x c h a n g e
will inevitably undergo considerable modification as the result of the
invention of the purchasing certificate, in almost all countries, particularly
in the United States end in Germany, the use of bills of exchange is gradually
growing rarer, owing to the increasing resistance of the deblor class Underlying
this resistance is the quite justifiab le feeling that bills of exchange
are "dangerous". The possibility of converting v a l u e into
m o n e y proves less easy than was formerly assumed when there was even
a stronger inclination than today to confound economie difficulties with
personal culpabilityThe idee that the conversion
of value into money is always easv for the deblor end at all events entails
no expenditure of time, effort end money of any economie importance, nor
involves special risks- in other worde, the idee that the rapidity of the
monetary circulation affects only the national, end in no way the private,
economy -, this idee dominates not only our jurisprudence teut our financial
mathematica(These two are in many ways
related. When the mathematical correlate of the speed of the monetary circulation,
i.e. the price index number had
been clearly established, learned jurists - in Germany to-day Reichsgerichtsrat
Zeiler - attempted successfully to introduce this conception into legal
findings & in this way prevented much injustice during the inflation
period).Financial mathematica has
hitherto completely ignored the concept of "illiquidity''. Its formules
have so far not gone further than to represent v a l u e; for example,
to compare future with present values or to compare two values of services
or claims appearing in different forms, as, e.g. in calculating the real
interest of loens not issued at per or standinq at par. The formulae, however,
do not aflos for the probable availability of ready money by the debtor
at a given noint of time The author has published
in the "Blaetter fuer Versicherungs-Mathematik'',
an initial discussion of the subject end this for the concrete case of
institutions financing but lding operations, Arising out of this there
has sprung up in Germany an extensive mathematica! literature on liquidity,
produced by financial institutions desirous of offering their members opportunities,
through thrift end the taking up of loens, to acquire their own house.
By extending the mathematical results obtained by these institutions, it
will become possible to reach gradually a general m
a t h e m a t i c s o f l i q u i d i t y,
i e, a mathematical theory concerned with:a) the existing relation
between the length of notice in sums accepted end lent by financial instituionsb) the probable infLuence
of time within which monetary investients at per may be converted into
means of payment, on the market value (e g., stock exchange value) of these
investments;c) the probable influence
of time within which monetary investments at per may be converted i nto
means of payment on the accumulati on of capi tal genera lly,Such a mathematica theory
of liquidity need not be inferior in exactitude to the mathematica of value
(Calculation of compound interest end of index
numbers) Nor should it be consider d as a
kind of intellectual gymnastics, as the following evidences,The inspectorate
for the life assurance companies of a large country ordered them a few
years ego not to invest their funds in ffloriqages repayable in regular
instalments teut in such where the deblor undertakes to repay the received
capital in a lump sum after a given aate. Such an order was only possible
because liquidity had(233) not
been recognised as an element of insurance mathematica. Leaving aside that
in the contracts required by this authority the debtor promises more than,
apart from good fortune, he can keep, such a provision conflicts with the
interests of the national economy as well as of the insurance companies.
The latter, as need not be shown here, expose themselves to the danger
of illiquidity if the influx of insurance premiums slackens which may very
well occur. The companies could then only meet their insurance commitments,
without affecting their capital investments, on the presupposition that
they can dispose of these investments at the purchase price. As the unfortunate
history of the last few years shows, this presupposition is by no means
always realised. The mathematician Furlan
appears
to have been the first to emphasize the necessity of introducing the concept
of liquidity into insurance mathematica. He pointed to the serious disturbances
of the capital market after the San Francisco earthquake when the insurance
companies sold securities of the value of several hundred million dollars
in order to meet their obligations; also, to similar phenomena after the
sinking of the Titanic ("Zeitschrift fuer
die gesamteVersicherungswssenschaft', 1912, p 1072, "Insurance Affairs
end the Money Market'). After he had finished
this study, the present author discovered that the celebrated mathematician
Christian
Kramp had already in 1788 solved a liquidity
problem in the "Leipziger Magazin fuer reine
und angewandle Mathematik" (and
this in a very neat way, applying to human mortality the 'double geometric
law' rediscovered a century after him). The
feeble economie grasp evinced in the compilation of the older legislation
relating to loan repayments, has led in all countries to distraints being
many times more numerous than they need be.The purpose of the received
legislation on distraints in all countries was to let the m a r k
e t yield what the debtor wouLd not or could not But,in fact this
legislation delivered both debtor end creditor to the vicissitudes of a
very tiny portion of the general market, namely, the m o n e y market.
It presupposed as selfevident that t h i s market is practically
undisturbed end is in any case well enough provided with money, And yet
the underprovision of this market was perhaps the very cause of the forced
sales. It may be contended without exaggeration that it depended only on
the accidental state of the money market whether the courts did not endanger
rather than protect property both that invested in the claims of creditors
end the encumbered property of the debior. Under the system of purchasing
certificates on the contrary, the property of the individual is no longer
jeopardised by m o n e t a r y
c r i s e s. (Only
then in reality, will a true c r e d i t insurance system become
possible.) Whence follows the exceedingly
great s o c i a l significance of the Milhaud purchasing certificate
a significance which most of his critics have missed. in the last chapter
wilt be found further remarks on the social significance of the introduction
of purchasing certificates end this in relation to insurance matters.We may add here that the
legal possibility of converting a debt payabLe in generaL means of payment,
by way of an appropriate surcharge into a purchasing certificate not enteri
nn into the general circulation, teut nenotiab le on the m a r k e t, must
infLuence tfie current economic i n t e r e s t theory. Interest
as compensation for a creditor so to speak taking over the s a l
e s c o s t s of a debtor, has probably not been treated, at
least not clearly enough, by the theory Thus far it lacks a chapter entitled:
"The
Means of Payment as a Determinant for the Rate of Interest".
One may alow, however, that in certain cases jurists have taken into consideration
the means of payment, e,g,' Justinian in his "Corpus Juris" when dealing
with "agriculturaL interest",i.e., with interest relating to a loan granted
end repaid in cereals, where the interest may rise to as much as 30% per
annus.Before the establishment
of the Reichsbank, it was customary in Germany for the smalt private banks
of issue to charge 2%, interest per annum when they granted a loan in their
own notes, but 4% when the Loan was in notes of the Bank of Prussia.But let us return to our
insurance society end examine what i t s purchasing ceritificates
cen do for its insured if for any reason ready money has ceased to be available
within the society's range of activity.234 The
week point theorctically of the whole goods warrants system is that the
acceptance of the warrants is voluntary in our present payment arrangements,
but that this weakness exists only in theory, tollows from the consideration
that legislation has never found it necessary to compel general acceptance
of the paper money of an economically appropriately organised institution
but that on the contrary, it has frequently intervened to p r e v
e n t individuals accepting such papermoney and also to prevent any
institution, except that holding the monopoly, to issue its own means of
payment. The most remarkable example of such tyrannical legislation is
the United States monetary constitution) This abolished the private banks
of issue be cause their means of payment, compared with the greenbacks,
were t o o g o o d (Consult
the numerous publications of the American periodical: "Sound Currency",)The following instance has
therefore only theoretical importance, but we shall also discuss it here
for the sake of completeness. Suppose that the owner of a flock of streep
has lost by a fire 100 sheep of the value of 20 rials each, The society
is prepared to pay him 2000 rials in goods warrants to enable him to replace
his sheep. But no owner of flocks in the vicinity or in the region wilt
accept the warrants in exchange for streep. What then? Such an unusual
case conceivable only where religious feuds or similar causes are at work,
can only be met by the insurance cenditions providing that the society
is not responsible for any loss arising from its goods warrants being refused
in general trading. Normally the owners of flocks will not decline to accept
the warrants On the contrary the insured sufferer from damage is likely
to receive offers from al sides end there may even be underbidding This
will happen because the varrants must be accepted in lieu of money by several
thousand persons, namely, those insured in the society end having in store
objects in daily demand.The steps to be taken in
order that the insured sufferer from fire should buy streep nith the goods
warrants end not anything else, or that he should not speed them on
w h o l l y purposeless objects, cannot be discussed here. In a succeeding
chap ter will be shown that the society does not hand over direct ey the
goods warrants to the insured whose property is damaged, teut to a supplier
perhans through an agent who subsequently untertakes the purchase, preferably
together with the insured.Suppose it is a question
of a small society having roughly 2.000 members, each of whom owes on the
average a contribution of 25 rials This implies that the society's goods
varrants have altogether a purchasing power of roughly 50.000 rials among
about 2.000 persons In the society's district end certainly also in the
neighbouring districts, a goods warrant havinq such a purchasing power
end bound to be accepted as ready money by several thousand persons,wouldbe
valued as ready money by everybody. Purchases with these goods warrants
just as with si lver coins of the same amount, could accordingly be made
also in the neiqhbouring districts. Of course, in more distant regions`
wfiere the inhabitants do not know the society, it is improbably that the
warrant will be accepted at par, Bankers, merchants, end others, would
however, accept them with a discount. This means that the warrants are
not so readily utilisable as the national currency. One must make the best
of this. But t h e r e s t r i
c t i o n t o t h e s o c i e t y' s d i s t r
i c t has one advantage. The warrants
will return to the society after a few days. This reflux indicates that
contributions end indemnity are adjusted, a r a p i d reflux
signifies that everything has proceeded quickly.The goods warrants having
returned, the society must destroy them. The destruction is then duly advertised,
just as happened previoualy in the case of many Eurpean end American private
banks of issue ( Down to today the Bank of
England destroys every note returned.) Here
where it is only a question of presenting outlines, we shall refrein from
entering into minutiae. It might be an advantage if a larger bank in Iran
for instance, the Banque Agricole et industrielle collaborated in the issue
of the goods warrants. These would then be issued in the form of standardised
clearing cheques for the bank branch of a given district end not as the
society' s goods warrants. Hovever, in this instance also the cheques would
only be subject to compulsory acceptance by the insured of the district
and by the district branch bank, this to ensure a relatively rapid reflux
(which continues to be the basis United States
Act of 1863 on the National Banks) and also
to impress on the population the difference between a bank cheque and a
bank note. (Should the Banque Agricole
et Industrielle be willing to collaborate it would lend in clearing cheques
the amount the society needs for expenses end have pledged for that amount
the outstanding contributions)
bank bonds only negotiable at the bank's branches, would be no novelty
for Asia. Hartner, in his work evincing
much insight, "Waehrung und Notenbankwesen Persiens unter Beruecksichtigung
der neuesten eit (Currency end Banks of Issue Problems in Persia, allowing
for most recent times), (Leipzig, 1932),
states that the notes of the Imperial Bank of Persia, founded in 1889,
were only convertible by the branches responsible for their issue Any one
desiring to dispose at Shiraz of a note marked say: "Payable at Bushire
only", had to reckon with a discount of 1 to 1.5% (However
the distance between these towns was 10 caravan days end 5 post days, transport
being so difficult (Rabino, "Banking in Persia"
p. 34) that technically the di stance exceeded
that between London end Chicago. And yet the discount was kept within 1
%' ) We are unfortunately not informed of
the charge on smaLl end large amounts respectively. But the experience
of two centuries suggests that while, for example, a 1000 kran note paid
a discount of 1.5%, one for 10 kran was accepted at par. Nor do we learn
whether the notes were discounted only by the moneychangers or also at
the bazaars The discount was in any event trifling end shows that the value
of the notes was certainly n
o t d e t e r m i n e d b y t h e i r m e t a l
l i c c ov e r. This is confirmed
by the great run on the Imperial Bank in 1897, but which Hartner, in agreement
with the modern monetary theory, cites as proof of the desirabilty of the
notes in Iran being convertible. The case, hosever, proves the contrary.
The bankers of Persia had learnt that the silver reserves of the Bank were
running very low end collected a large number of notes mostly by borroweing
them from the public. They then presented the notes of the Bank for redemption.
The Bank was unable to keep its promise to redeem end the exchange vatue
of the notes fell For a 100 toman note only 95 tomans were paid in silver
at Teheran. (See Hartner)
But such a discount for denominations as high as 100 tofflan may be regarded
as very modest, more particularly if we consider that the bankers used
every means to depress the exchange in order to buy the notes cheaply.
And we should have to discover whether the discount was also 5' at the
bazaars. Rabino, the very able director
of the Bank, met the situation eventually by, appealing to the Shiitic
law, which does not recognise the notion of legal tender (Hartner,
p. 28) end
offered the bankers English nound notes end French gold pieces, Pursuant
to the Shiitic rules regarding "good faith" in trading he had thus done
his duty, although he could not fulfil the letter of the obligation to
redeem, according to which he would have had to Day in silver coins. In
similar instances, the Bank wouLd have become inevitably bankrupt in Europe
or the States, or would have had to accept any conditions imposed on it
by the note creditors, Moreover, Rabino's work reveals why during recent
decades Iran has had to be satisfied with a
s i l v e r currency, even though
the presumption was entirely in favour of a g
o l d one. Since the competent authorities.
like the world generally considered the c o n v e r t i b i l i t
y of banknotes indispensabLe but recoanised that unconditional convertibility
is impracticable, they concentrated on making conversion as d i f
f i c u l t as possible. Conversion into silver suited this plan.
On p 39 of his above cited work, Rabino remarks that a man could at most
carry away 300 pound sterling (prewar value), a donkey 600 a mule 800,
and a camel 900. Hence a comparatively small sum for a Dank, such as {25
000, required as much as 8} fully loaded "redeemers" and the counting,
by skilful reckoners, would occupy 16 days. Rabino had published this calculation
p r i o r to the great run of 1897, and as the run showed. the caLculation
was arithmetically accurate, teut erroneous economically The silver standard
was nevertheless maintained because, on the one side no one knew before
Milhaud, in Teheran or elsewhere, of any means of equalising the value
of paper money and of preventing, on the other, the danger of a run on
a bank.That the vaLue of bonds
made out in money depends not on their c o n v e r t i b i l i t
y into metal, but on their commercial utilisability (or,
as Knapp pertinently remarks, on the c i r c u l a t o r y, and not
on the actual, satisfaction of their possessor)
appears to have been known centuries ago in Iran. Nizam al Mulk one of
the greatest statesmen of all times (who lived
at the time of the Crusades) reports
236 in the penultimate
chapter of his work "Siasset Naheh" (translated
by Schefer into French a work still highly esteemed in the East),
on orders to pay, made out in money but redeemable also on goods Such orders
must have also played a part in the collection of taxes, inasmuch as the
vizier mentions a case where particular taxes were raised in precious metals
with a view to replenishing the Shahis war chest end where neither clearing
nor any other form of payment was admissible Nizam himself paid with orders.
These were accepted by particular taxation offices at their face value,
a system the importance of which for the Exchequer as well as for the taxpayer
was as little understood by the average folk of that day as of this. It
is stated that the ferrymen, when Malek Shah crossed the Oxus were paid
by Nizam al Mulk in orders on Antioch and that they complained to the Shah
that the place of payment was many days distant. Nizam, called to account
by Malek spent little time in theoretical monetary explanations, which
moreover his imperial master would have hardly understood, but simply answered
that to heighten Malek's fame, he had made out orders which mentioned simultaneously
two far removed places both subject to the Shah. Malek was satisfied, end
so were the ferrymen when they found out that the orders were negotiable
without discount (Malcom's: 'History of Persia'
and Gibbon's: 'Decline end Fall of the Roman Empire', vol. 6) In
this connection we may add a few words about the meaning of a monetary
standerd for insurance matters in Asia end more particularly in Iran.

J. THE STANDARD OF VALUE
IN RELATION TO INSURANCE IN ASIA, MORE ESPECIALLY IN IRANQ (I rank range
and hopper di pop)Most contemporary economists
are partisans of the modern monetary theory. The essence of this theory
is the viewpoint which already the Finance Minister of Louis Xl, Chamillard,
vainly endeavoured to impose on the French people, namely, that the ruler
should possess the right: _a ) to fix the value
of paper money at his own discretion, endb ) to demand that the
population should make extensive use of this paper money, (Camillard
required that a quarter of all sales should be mediated by the "royal i
e, h i s paper money). (
See Roscher, "National-Oekonomie des Handels und Gewerbefleisses" chapter
7 ) The hereby imposed restriction of
c l e a r i n g is noteworthy. Clearing
is a very .e m b a r r a s s i n g category for Governments bent on currency
abuses for in it is immanent the emancipation from the money monopoly of
the State end it inevitably introducee into the prevaiLing system of payment
the ele_ ment of s t a b l e v a l u e,(Prohibition
in Soviet Russia to remunerate workers with confirmed clearing cheques
pursuant to the currency Laws of 1930, Further, a l s o in Soviet Russia,
prohibition for worker-co-operatives to endorse cheques )The fact that the real sovereign,
Louis XIV, stood subjectively aloof from these theories, makes clear the
meaning of that demand. Chamillard, with his quite inferior capacities,
claimed for the s o v e r e i g n s power which he was
sure he end his friends would necessarily w i e l d. Shrewdly enough,
he eked out therefore his own deficiencies with the (filched) power of
the sovereign. At the same time he met implicitly every criticism of his
capacity as a finance minister by that very measure, in that any criticism
appeared necessarily as an act of rebellion against the king, an attempt
to challenge his sovereign rightsSo it was then and today
it is scarcely different. Meanwhile the money theorists have grafted onto
their claims the now well developed t h e o r y o f i
n d e x n u m b e r s as well as the theory of the terrestrial
influence of sunspots
which
also may be regarded as established today These three components may be
said to form now a seemingly firmly founded unity knit together by mathematica,
astronomy, statistics, end patriotism. It inspires in the cultured Asiatic,
too no less awe than his less cultured compatriot exhibits before the idols
in the temples of Benares, with their many heads end dozens of arms.The modern monetary theory
is fortunately of such recent date that its genes.is may be easily follewed
in alt its ramifications. It was bom during the War and further "developed"
during the inflations of the postwar period end that simply for the purpose
of justifying the financial policy of those years. What were the theorists
to do? They had no proposals of their own to submit, They were obliged,
however, to say something, end so they just defended what the governments
were doing. (Thus an eminent (237)
theorist of those theorist of those days did not shrink from affirming
in print that in the "light" of the modern monetary theory the depreciation
of the French assignats should not be off hand considered as due to the
printing of notes. The official French view of that day that the depreciation
was the work of Hamburg speculators might have after all something to say
for itself.) in the minds of the younger generation,
the modern theory has become an a p r i o r i form of thought, in
the sense of an Aristotelian category, The
sunspot curves associated with the theory possess also the special advantage
that i f a critically inclined student should entertain the idee
that the monopoly of the central banks of issue might be a possible cause
of the depression, he could be at once silenced by referring him to the
c o s m i c components of the monetary theory the study of which requires
today several years end much more mathematica than Copernicus needed to
establish his world system. This same young
scholar who would not have been daunted by the m u n d a n e money
powers, becomes, since he is only a c
r i t i c end not a h
e r e t i c overawed by the c
e l e s t i a l powers who are so intimately associated with the
former. However, a healthy reaction against the modern theory, with its
belief in a k i s m e t by
means of the maxima and minima of the secular end other trade curves, has
set in precisely in Iran. For instance, in the issue of 30 June 1930 of
its "Revue", The Teheran Chamber of Commerce places those economists who
desire to postpone constructive reforms until, according to the trede cycle
theory, the 'bottom of the crisis' has been reached, on a level with astrologers
who counsel that action should only be taken in important enterprises when
the constellations are favourably situated. The passage is quoted in Sir
Arnold T. Wilson's excellent "Persia" ( London 1932 ).However, Reza Shah Pahlevi,
who is now the hope of his country, may be assured that those counsellors
of his are altogether in the right, who place an Iranian paper currency
on the European or American model that is #ith a forced rate end the suppression
of free deaLings in goLd on a level with the experiment, well
known by all cultured Iranians', of Shah Kan Khatou in 129k, who, on the
advice of Izz-eddin Muzafer ibn Muhamed iDn Amid, the royal flag bearer,
issued forced paper money (closely resembling
that issued in China in november 1935 _ always the same idee),
teut was obliged by an insurrection of the peop te, to allow again after
three days, the use of honest money, lzz-eddin Muzafer lost his life thereby,
The exchange rate of the tchao notes fell within a few hours to onetenths
of their nominal value. Highwaymen paid cash to their victims (in
tchao the nominal value of their robbery)
end appealed to the forced rate. Without it. the vaLue of the notes would
have probably returned to per end maintained itself there, since the amount
issued seems to have been quite moderate for Shiraz, e.g., only for
5 old tomen, equivalent to about 625.000 Swiss francs,That was not much
for such a large city (Rabino "Banking in
Persia", p. 26) It is remarkable that in these
circumstances the taxation basis failed, i.e., that the population did
not simply use the depreciated notes for making tax payments. The historians,
who have carefully preserved for us the long name of the murdered flagbearer,
paid no attention to this important point, It was probably a case where
the taxation basis has failed in all times, namely, where the people end
the business world are not sure of the amount of forced money issued end
fear that the quantity of such money is about to be increased. Moreover,there
is the point that only three days had elapsed between the first issue of
the paper noney end the murder of the flagbearer. The paper money circulation
in Iran today confirms Lorenz von Stein's rule that a country may possess
a third of its annual public revenue in paper money of stable value.

That a people should rise
in revolt in order to compel its Government to issue s o u n d e
r money, has happened often in ancient times, particularly in the
East. This has however, occurred only once in modern times, namely in October
1923 in Germany But popular revolts having for their object the depreciation
of money have been frequent in recent years. It does not follow, however,
that the mentality of peoples has changed of late. What
is i n t e n d e d is always a removal of the s h o r
t a g e i n m e a n s o f p a y m e n t
and this, according to the common, but erroneous, opinion today of peoples,
governments, end modern economie theory, is achieved through depreciation.
The
error of peoples, governments, end economists is revealed by the fact that
so far the depreciations of money have in no country contributed to easing
the d e p r e s s i o n, (238)
great as may have been the advantages reaped by some individuals. Asiatic
economists deceive themselves for a pardonable reason. When visit Europe
or America in order to study the effects of money depreciation, glimpse
the magnificent buildings, the clean streets, the thousands of motor cars,
the many well dressed individuals and they are tempted to reason :"These
Europeans and Americans know something. Everything I see here has cost
money end this money they have known how to secure somehow. Their
m o n e t a r y t h e o r y deserve respect, attention and emulation.
And the latest currency depreciation has evidently had a favourable effect,
else the traffic on Fifth Avenue or around Victoria Station, etc., could
not be so enormous". Moreover, those whom
the visitors meet are almost he men who had recommended currency depreciation
end who are naturally convinced that the still surviving economie activity
is only maintained by the preceding depreciation.Returned to his own country,
this economist naturally bases the advice he tenders his government on
the impressions he has gathered. This inevitably paralyses the active intentions
of the country's rulers, be he the Prime Minister or the Sovereign himself.
His education does not suffice to refute the theorists on their own ground.What the "practical men",
i.e. the bankers, the wholesale merchants, the manufacturers and labour
leaders demand, does not contradict the theory. It always amounts to this,
that of the managed money of one group more should be t a k e n
than hitherto g i v e n to the others. The ruler receives the
impression that he is faced here with a complex of tasks where the best
he possesses -common sense, knowledge of history, energy end honest
intentions- has as little scope as, say, in the application of the integral
calculus (By the way' here also these qualities
are not superfluous). In the face of the welter
of opinions end claims placed before him daily, he is almost in the position
of a general during a war, from whom the truth is kept, but must make decisions.
Clausewitz
the
great war theorist, writes on this point in his chapter "Information
in War": A large part of the information available
during war is contradictory, a still larger part is untrue, end the largest
part by far is wrapt in uncertainty, ... Well, indeed, if the reports,
contradicting one another create a certain equilibrium end call forth criticism.
For the uninitiated it is far worse if chance does not render him this
service, but one report lends support her confirms exaggerates paints the
picture with ever new colours, until necessity has hurriedly forced him
to make a decision which is soon recognised as foolish, end all the reports
as lies, exaggerations, mistakes end the like. ,.. Firmly, in reliance
on his better, i n n e r knowledge, the leader must stand,
like a rock whereon the waves break. This is not an easy part to play."The part played by rulers
faced by currency theorists is almost comparable with the position of Alphonso
X, king of Castile. He found that Ptolemy's e p i c y c l e s
were exceedinqly c o m p l i c a t e d end permitted himself
in the presence of astrologers, high ecclesiastics end other eminent personalities
the facetious remark: "I would have constructed the universe m o
r e s i m p l y". This "blasphemy" it is said, cost him nearly his
throne. But the ruler of our day would find it easy to shake the power
of the theorists end even to set them at loggerheads, leaving him to carry
out his own plans. He need only address to
these gentlemen the embarrassing question where the c l e a r i n
g element in their theory is to be found, which in practice -from
Nebuchadnezzar downwards- mediates ninetenths of all economic transactions.
From
this question there is but a step to accepting Milhaud's monetary system
which places c l e a r i n g in the centre end would also bring
it within the grasp of peasants and workers (but
nevertheless does not forbid any one to pay with gold, should he have any
end wish to pay with it,)Asiatic peoples have from
time immemorial shown a sound end deep respect for honest fitness in currency
matters. This respect has been reinforced by traditions many centuries
old end has always been justified by experience. No statesman in any Asiatic
land, whether in peace or war, has lacked means or success if he listened
in this to p u b l i c o p i n i o n. Indeed, for over two
thousand years the peoples of Asia have only regarded their ruler as legitimate
end his reign as assured if he minted g
o l d c o i n s bearing his image
or an appropriate inscription. The people are right! In iran, too, only
such a dynasty will endure whose rulers possess the (239)
courage, in defiance of the theorists, to mint gold coins of full weight
end permit these to circulate freely. A gold shortage is almost impossible
if trading in gold end the possession of gold are not made difficult, end
if, moreover the mint, for a moderate fee, converts any gold brought to
it into coins as, in fact, the (un-executed) Iranian Act of 10 March 1930
provides. The mintage fee pursuant to article 6 was to be 1 gold rial for
1 kg. fine gold end 1 gold rial was to be equal to one twentieth pahlavi
or to an English gold shilling, 1913 standerd.Of course even after the
introduction of the best currency laws end after putting into effect the
principles proposed by Milhaud, there may yet passingly or for a longer
period, end this in the best ruled country, be such a shortage of precious
metal that it not only disappears from payment transactions, teut becomes
useless as a standard of value in certain economie domains, e g., in leases.
(In the world's richest country, in France,
the peasants, because they no longer meet with gold coins end therefore
eye with suspicion paper money, are more end more tending to conclude their
lonqterm contracts in c e r e a l s instead of in gold, forcing thus the
legislature lo concern itself with this question)
China may now be approachirg this condition silver is still practicable
in China as a standerd of value although it has disappeared from payment
transactions. However, if the United States Treasury continues to attract
silver by forced purchases, it might very well happen that silver would
have to cease to be a standerd of value in China. It is true that some
Chinese acquire thereby American dollars (parer
dollars or bank balances) to the same extent
as their country loses its silver. But the paper dollars do not come Chinese
means of payment end, rightly enough, they are disliked as standerds of
value. Over large parts of China, as has been the custom for centuries
when there was a shortage of silver resort is had to copper coins end even
to copper as a provisional standerd of value also to notes made out in
copper, although the edicts of the Nanking government prescribe for both
purposes the use of the n o t e s o f t h e c e
n t r a l b a n k which are detached from all concrete material.
(The Kuomingtang
patriot exclaims, however that the father land is in d a n g e r
end that at such times all means necessary for the defence of the country
should be c o n c e n t r a t e d in the hands of the Government.
How, it is urged, can the currency be safeguarded if the means
of payment are not c e n t r a l i s e d in the Government?
The
answer is that in times of national danger the country's r i f l
e s should be in the hands of the s o l d i e r s end not in that
of the Ministry of war. The shells should then be heaped by the side of
the guns end not "centralised" in depots. But the c l e a r i n g
instrument such as the standardised clearing cheque end the standardized
purchasing certificate, should be, more particularly in times of
d a n g e r, in the hands of those who h a v e something to clear,
who must exchange labour power for rice end coal for tee end should not
be the monopoly of the Finance Minister end the few who are in a posi~ion
to clear without standardised certificates of small denominations It should
be rather the duty of the Finance Minister to e n c o u r a g e clearing
transactions among the population end create without delay clearing centres
where there are none, as welf as agree to clearing arrangements for tax
payments, Moreover, the Finance Minister might devote a small fraction
of the sums now prodigally spent on vainly putting into effect "currency
laws", to translating quickly Milhaud's discourse held in 1931 end entitled
''Un projet d'action immidiate contre le
chomage et contre la crise" end present
a copy to every official This discourse is reprinted in several languages
in the various editions of the "Annals of
Collective Economy" (in
English, in "Fresh Work, Fresh Markets", under the title: "A Plan for Immediate
Action against Unemployment end the Economic Crisis Simultaneous end Joint
Provision of Employment end Markets"). It
contains the essence of what should be done.Such a currency, based,
on the one hand, on the principles of clearing end, on the other, on a
fixed quantity of some currency material as the 'monetary unit' no more
requires a Minister to d e f e n d it than the Chinese weight measure
"pikul" or the measure of length "li". Similarly, the old t a e l
standerd, based on a given w e i g h t of silver and only recently
abolished could not have been imperi lied by any attack whatever whether
of a Government or of speculators, not even by the combined might of all
governments end all the world's speculators.
240An Asiatic statesman must
be equal to a situation like that prevai ling now in China, end this involves
that he reconnises it for what it is How n o t to act in suchsituations
follows from the results of the Nanking government's conduct. lts currency
policy actually led the competing authorities of the Northern Provinces
mainlv in order to secure a serviceable currency end means of payment,
to cease in november 1935 all opposition against the separatism now latent
everywhere in Asia.Given the unrestricted right
of issuing purchasing certificates whose value is fixed in aprecious metal
teut which are not c o n v e r t i b l e into this as well as a debt
legislation which does not entitle the creditor to metal when there is
a shortage of it, then theprecious metal concerned remains practicable
as a s t a n d a r d o f v a l u e even if it hasdisappeared
from extensive regions, allowing for sufficient trede with countries where
the precious metal concerned still circulates effectively end unrestrictedly.
But should tredeeith such countries shrink into insignificance, or should
the precious metal begin to departfrom those countries also, a new standerd
of value would have to be introduced In peacetimes, when nothing else is
feasible, as now in China, it is open to every isiatic people toa dopt
a copner currency. Such a currency existed already three centuries ego
in Sweden and was the immediate cause for the introduction of the first
European notes which were then most appropriately called "transport scrip".

Should, however, for anv
reason, copper cease to be available (e.g.,
because of the outbreak of a war when the Government requires all copper
for making shell bands), it might be considered
whether the k i l o w a t t h o u r of the powerstations should not be
chosen as measure of value, end this also for insurance contracts, the
power stations issuing at the same time a kwh money. (The
"Revue d'Economie Politique", July-Augustnumber, 1934, Paris, published
a most interesting correspondence betweer, Laurent and Walras on physical
labour units as standerds of value.) Of course,
the kilowatt hour doesnot represent as stable a value as freely circulating
gold
end
silver.
But
in the course oftime, as Asia comes to use wind power for producina ki
lowatt hours,this defect will perhaps be remedied By the way, wind force
acts #itfi the third potential of the velocity ofthe wind. Thus
windmills which in Central Europe operate "normally" at a wind velocity
of 4} m, produce an eightfold result in Asia when the wind velocity is
doubLed ( whichfrequentLy occurs in desert regions).
In fact, according to Wilson's "Persia", windmills were invented in Seistan'
"the Land of winds", about the time of Muhammed. (Concerning
the importance of windmills for the East see Laemmel, "Sotial physik")At all events, in almost
every region of Asia it is already possible to producekilowatt hours in
some form in such quantities that no currency policy however senseless
of any reading power could create a deficiency, If, for exampLe, every
districtin China, where silver has disappeared,adopted a kwh standerd end
accepted as its monetary unit, the kwh of the nearest power station the
United States could buy up withits dollars as much kwh money as it could
pay for. The free right of issue in China would remedy at once any shortage
occasioned by these purchases. In fact, the result would be that the purchases
would in effect represent, on a kwh basis, a non-interest bearing loan
of the United States to China, repayable in goods or services, which would
be very welcome to China

A currency policy inspired
by the principles of Milhaud would enable a statesman,on e a c h attempt
of neiqhbouring countries to enrich themselves at its expense through monetary
measures taken, to turn the tables end b e n e f i t his own
country instead. The advantage would be ;the greater the more the neighbouring
governments were enmeshed in their currency fallacies, the later they recognised
their error end the more exagnerated the measures they resorted to. To
which, add, as Voltaire well remarked, that governments possess generally
sufficient fortitude to bear the misfortunes of their peoples end that
therefore the evils arising from monetary abuses have to be v e r
y great before a government acknowledges its mistakes.
Also, some highly placed personalities profit by every currency absurdity
end therefore defend it publicly with greater zeal and logic. than the
Government could. Hence a statesman's chances to profit by the fallacious
currency policies of his neighbours, are decidedly favourable.

A huge efflux of precious
metal abroad end a far-reaching deflation occasioned (241)
thereby,
occurred also in Iran about 10 years ago. The description offered by Hassan
Naficy Mocharrav-od-Dowleh, in his highly
instructive work "L' impit et la vie economique
et sociale en Perse". (Paris, 1924) , of the
then prevailing deflation phenomena,shows that everything that had ever
be n experienced in Europe end the United States in the matter of trade
depressions end unemployment was far exceeded by what Iran underwent after
the War. Naficy deplores the absence of credit institutions as these make
good as far as possible,the shortage of ready money by notes, cheques end
credit. such institutions have since been established so that Iran possesses
now not less end not worse paper money end bank money than other countries
having a "managed currency". There is no reason, however, why present day
conditions should not be considerably ameliorated end why currency legislation
animated by Milhaud's principles should not be enacted after which all
provisions relating to money end foreign exchanae might be repealed.The Currency Act of 1930
presented a notable beginning. Nevertheless we need not regres that it
was not put into effect, Article II I of the Act (see
the already mentioned excellent work by Hartner)
established a fixed relation of value between silver rial end gold rial,
that is a double monetary standerd such as formerly existed in France end
the countries of the Latin Monetary Union. Thus a rial containing grammes
fine silver would be equal to 0.3661191 gramme fine gold equivalent to
an old English gold shilling. This ratio couid not possibly be maintained
without prejudicing all Iran's creditors. D o u b l e m o n e
t a r y s t a n d a r d s cannot continue for long. But
a p a r a l l e l m o n e t a r y s t a n d a r d
such as Iran possessed for centuries, that is with free circulation of
all means of payment end, above all,with free deaLings in metal (Hartner
describes the condition as "species standard"),
would have been just the right thing.We cannot, however, agree
with Hartner when he slates that the new Act introduced the concept of
"legal tender. (see his work, p 28), which was foreign to the Shiitic law
(see p. 91). True, in pursuance of the Currency
Act, the debtor could pay the creditor, a t h i s d i s c r
e t i o n in gold coins end in silver coins but, on the other
hand, no provision of the Act entitles the creditor to demand a particular
means of eavment a t t h e c r e d i t o r 's d i s c
r e t i o n if article X of the Act states that henceforth taxes
will be collected on a 'gold basis' the evident meaning is that gold
is to be the m e a s u r e o f v a l u e of the effective
means of payment, exactly as was the case in Germany at the end of the
inflation period. The ancient principle of
the Shiitic law (the Sheriah), according to which, in the absence of special
arrangements, the creditor must accept current means of payment, which
the deblor is entitled to select, is hence maintained in the new Act.The
Act therefore conformes to the rule enunciated by Milhaud
in his "Organised Compensatory Trading" (London, 1937, p 59)
That the old Sheriah draws such distinctions, probably not to be found
in any European or American legislation (excepting
perhaps in German legislation see par. 242 of the German Code of Civil
Law: The deblor is bound to fulfil his obligations as required by good
faith end in the light of commercial usage. That is, already before the
Jara creditor could not by any means claim gold coin! )
must raise our respect for this ancient legislation, also for Muhammed
who inaugurated it, end for his followers, among whom there were shrewd
thinkers. (Jurists end economists will find
in the dissertation, "Mohammedan Theories of Finance", by Nicolas F Aghnides,
New York, 1916, much of value for non Mohammedans also).Notwithstanding the paper
currency existing now in Iran, but which does not deter many merchants
from keeping their books in gold tomen, no people by tradition end law
apart from the latest stands nearer to Milhaud's ideas than that
of Iran. It is hence not quite utopian to hope that the reforms proposed
by Milhaud would be s o o n (perhaps sooner than elsewhere) introduced
in that country.A comparatively stable currency
is indispensable for insurance purposes. The stability need not be
a b s o l u t e, as would be the case for instance, with a perfect index
currency (if it could be developed) Even a stable silver currency would
suffice if silver were allowed to circulate freely. The necessity of a
stable currency becomes alarmingly manifest where in currency depreciations
the insured is at once subjected to a more or less considerable 'under-insurance'
(insurance
by assessments (242)
form
practised by several Prussian societies is, however a match for this. We
shall return to the subject.)But a stable currency is
not onty required for themeasurement of value, teut also in order not to
prejudice the insured in paymentsmade to him If a currency depreciation
is expected, it might welf be anadvantaqe for him to remain gninsured end
to saye his whole premium, although if he insured himself he would remain
insured for a portion of his property when the currency aepreciation has
started. The occasional advantage of remaining uninsured is demonstrated
by the theory of value, especially asDaniel
Bernouilli
stated it, In par. 15 of his work
that appeared in 1787, "De Mensura Sortis"
(p 43 of Prof Pringsheiffl's translation, Leipzig, 1896),
he calculates that, e.g., a merchant intending to despatch goods of the
value of 10.000 route tos from Amsterdam to Petersburg end knowing that
the transport risk is 5% (two centuries ago it was really that!) but that
he would have to pay a premium of 800 roub'les' cen bear the risk himself
if he possesses 4.043 roubles apartfrom those goods. If his calculation
is correct, it follows that a currency depreciation of three-eighth immediately
after the signing of the insurance contract would render the insurance
disadvantageous for this merchant even if it had been issued at a net premium
of 500 roubles.It is, moreover, remarkable
that since Bernouilli's time, two centuries ego, there has been no noticeable
progress in estimating the highest point in the insurance premium where
the insurance commences to be less advantageous for the insured than self-insurance.
From the present standpoint of the science of insurance, Beinouilli's illustration
suggests a hicher amount than 5043 roubles as the limit where the merchant
may safely undertake to be his own insurer.We should consider to-day that
the 5% probably mainly relates to partial losses end also that the inference
is basedi oncomearatively few observations. Condorcet showed, for instance,
that when we'have only the o b s e r v a t i o n to rely on
that in 20 drawings out of an urn 19-white end 1 black balls were drawn,
there being no other information as to the contente of the urn, theprobability
of drawinq next a black ball should be estimated as 5,8, teut with ( 1
+ 1 ): (20 + 1 ) . 2/21 - that is, quite differently than if we k n e w
exactly that only 1/20 of all balls in the urn were black.Condorcet deserves to be
specially noticed here. His works are not
only important for the development of public insurance, teut a lso for
the history of paymenttransactions. Elected Member of the Academy at the
age of 27 end one of the most distinguished French mathematicians, he was
appointed in 1776 Inspector-of the Royal Mint end continued to hoed this
post until he was called to be Finance Commissioner in1791 Condorcet's
"Sur les monnais", which appeared in Necember 1790 shows how welfversed
he was in m i n t m a t t e r s, a domein very different
indeed fcem that of p a y m e n t t r a n s a c t i o n s.
He was Turgot's friend end collaborator for many vears Ourinathat eeriod
he had not only occasion to recognise the desirability of the lower classeshaving
their persons insured teut also to discover that the then prevailing privateinsurance
system was manifestly not in a position to introduce such insurance. Accordingly,
Condorcet published in 1790 a highly informative pamphlet of only 14 pages,"Sur
les caisses d'accumulation". Several decades
after hisdeath, his ideas on the subject were realised in a number of countries,
mostcomprehensively in the public life-insurance institutions established
in some of the Prussian provinces in 1910. That a century after Condorcet,
end without knowing him, the founders of these institutions proceeded as
he had proposed in his day, proves Condorcet's profound economie insight.A principal cause of the
French Revolution end its direct occasion- to which the_ mewe shall return
at the close of this study - was a sudden, general shortage of means ofpayment
This rendered the already excessive burdens of the populat~on taxes, groundrente,
etc. - simply intolerable In numerous instances even the means of paymentneeded'for
paying the army were wantinn end several military revolte followed as aconsequence,
A substitute for the vanished money had to be found, All turned to theInspector
of the Royal M i n t, the great end experienced economist Turgot's friend,
the mathematician of world fame but it must be adnitted, Condorcet disappointed
expectations. - Certainly, he was not more disappointing than the others.
Ministers, authors, the National Assembly, end the king himself. However,
his misapprehension of the only way of salvation, was a catastrophe, for
he would have possessed sufficient authority to put into effect a sound
policy. 243First, Condorcet did not
see that the domain of public finance should be sharply separated from
that of private payment transactions, The bankruptcy of the State was perhaps
inevitable -who could know it?- but the condition of the public finances
should not have been the cause that, e. g., the silk manufacturers of Lyon
could not procure the money for paying their workmen's wages. Banks, on
the model of the already long established end tried Scottish system, might
have helped, especially those based on the system prohibited by the English
Parliament in 1765 end 1775. Before this legislation was enacted, bankers
had the right to issue notes bearing words to the effect thtt the holder
cen demand of the issuing bank the immediate conversion of the note into
metallic currency, if the bank disposed of same, end that in the alternative,
the note should be repayable at the option of the issuers (usually after
six months), interest accruing being generally at 5% per annum, In practice,
this system operated as would a system of purchasing certificates teut
this by means of a theoretically faulty juridical construction One might
almost say therefore that the system of purchasing certificates was already
known at the time end had justified itself. It only asked to be the instrument
for saving France.The purchasing certificate
system is not historically conditioned. It fits into e v e r y economie
order where paper money circulates, Subsequently, when the system of assignates
was in full force, when 800 workers in the National Printing Office did
nothing day end night teut print notes, whilst at the same time ( or rather
a s a c o n s e q u e n c e ) in accordance with the experience
of e v e r y inflation, the shortage in means of payment became more
a c u t e _ at that moment in Paris, as Levasseur states, 80
different kinds of private money were issued, their only cover being that
the issuer would accept them in payment at their face value. ((How
lifelike! When has Nother Mature ever refused to welcome and return
upon the return of rock, especially
if it has been transformed to dust meanwhile..your digitalizer))The
same had happened shortly before in Scotland when the notes of the banks
became subject to compulsory redemption end the banks only dared to issue
a small proportion of the means of payment required by the country. Numerous
firms issued notes which today we should describe as purchasing certificates;
but the competent authorities, as eell as the economists reearded this
simplv as a breach of the law (See Kerr, 'History
of Banking in Scotland'.) And why that? Because
neither in Great Britain nor in France would public opinion rid itself
of the i d e a of convertibility. Unfortunately, Condorcet
also held this view. In several passages of his writings on assignats,
he stresses c o n v e r t i b i l i t y, of course d e f e
r r e d convertibility, and t r u s t therein as conditioning
the circulation of paper means of payment. He advised that if this trust
should be waning simply to r e d u c e the issue or, as we should
say, to produce a deflation And yet the cause of the revolution was a deflation!
The National Assembly could naturally not see the advantage of such advice
end the first assignats were printed.The smallest denominations were for
over 200 livres, in order that they should not be used as a m e a
n s o f p a v m e n t among the general population, Condorcet
expressly praised this limitation,but the deflation grew in spite of the
issue of 100 million livres in assignats. The urgency became also unmistakabte
to provide means of payment for the p e o p l e. There seemed to
be only one possibility realisable w i t h o u t d e l a y'
namely to issue assignats in s m a l l denominations. Condorcet contradicted
no longer, but demanded the convertibility of the small denominations into
c o p p e r, if s i l v e r should not be available, This,
too was of course out of the question. He was so far removed from the idee
of a means of payment based on c l e a r i n g, end therefore
from the idee of value maintenance through r e a d i n e s s
t o a c c e p t, that he even misjudged the sound plan proposed by
several persona, of an inconvertible paper money having an unforced exchange
rate teut accepted at per in tax payments. He dismissed the plan in seven
printed lines without criticising it. ("Plan
d'un em prunt public avec des hypotheques spiciales", Paris 1789,)In such a situation, in
the midst of a sharp deftation end general ignoranceof the nature of a
means of payment, all Governments have had recourse to inflation with forced
value, end the French Government formed no exception. When, in addition,
car broke out, an atmosphere was created where terror alone could flourish,
(We who have e x p e r i e n c e d four
years of war end some years of inflation cen appreciate that situation,
whilst the great historians of the Revolution, Carlyle for instance, 244
were faced by endless riddles because they passed their lives in a period
havinq astable currency end enjoying almost undisturbed peace )
Condorcet was placed on Theproscription list in 1793 end only escaped the
guillotine by taking poison which he hadlong carried about with trim. The
French monetary system would~probably have developed quite differently
if Condorcet, Mint Inspector, Member of the Academy, mathematician of renown,
as well as economist of high authority, could have made useful Proposals
in theid~rection of providing France with sufficient means af payment without
inflation. If theFrench monetary system had thus remained sound,the Revolution
would have taken adifferent direction. The terrorists would have remained
what they were: Robespierre asentimental lawyer end a determined opponent
of capital punishment, Collot d Herbois, a successful dramatist end, as
actor, the people's darling. It remains an as yet unfilfilled taskof historians,
at least to enumerate the instances where the world's history took a wrong
turning simply because at a given period a given individual misconceived
the means ofpayment problem end confused it with other problems.

K. INDEMNIFICATION OF
LOSSES ONLY THROUGH REINSTATEMENT OF DESTROYED VALUES AND NOT THROUGH
CASH PAYMENTS

A very considerable proportion
of all indemnities paid by insurance societies refers todamage caused by
the insured themselves. To present this aspect in statistical form, isnaturally
not possible. However, insurance statistics afford sufficient guidance
to permitus to recognise this kind of morel risk For over a century it
has been noted that w a r y e ar s are without exception 'good' fire years
The contrary right have been expected, sincein war time f i r e a
i d cannot be as efficient as in peace time, but in war time pricesusually
are on the upgrade, end in times of rising prices men do not freely choose
tobecome creditors, not even of an insurance society. Everybody who in
war time possesses material value, whether a house or commodities, endeavours
to retain them. Add to which, rising prices occasion a general "under-insurance",
A store, for instance valued to-day at 10 000 francs end insured for that
amount, is, after the war has supervenedsuddenty worth 15 000 francs, teut
is onLy insured for 10.000 francs. The "supplemen~aryinsurance" wilI not
be taken up so rap~dly end the under-insurance reduces very considerably
the temptation which might otherwise have existed to obtain ready money
bysetting the store on fire. Insurance statistics relating to inflation
times are even moresuggestive than those referring to war times.The temptation to obtain
ready money by bringing about a fire-loss is very great and is an aspect
requiring careful study when contemplating the establishment of insurance
societies in Asia. To ilustrate the importance of this aspect, it is not
superfluous to mention that in life assurance the number of suicides among
the insured is far more considerable than among persons who have not insured
their lives. Pre-War investigationby Scandinavian offices ~showed a ten
times greater rate among insured than among non-insured persona, In Germany
the rate is about three times as high. Moreover, the suiciderate among
the heavily insured is greater than that-among the Lightly insured. If
we remember that the insured belong generally to sections of society where
the causes driving the lower sections to suicide ( namely, illness as a
chief cause, next to it, want ) act less 'intensively', if we further remember
that the insured amount is not paid to theinsured teut to the surviving
dependents, we shall appreciate the strength of the temptation to mobiLise
ready money by brinqing about an ordinary insurance loss. (IncidentaLly
remarked,the statistics, aLthough no proof of an irreproachable m o r a
lsGnse in the sections of society concerned, nevertheless show that the
f a m i l y s e n se existing in these sections teut denied by many of
the order socialists, is very strong. Consider: every year both in Europe
end in the United States several hundred individualstake their lives, only
in order that their dependents ray come into ready money. (These
statistics will undergo a greàt change after the introduction of
Milhaud'spurchasing certificates)It is noteworthy that many
public insurance companies in Germany have managed to remove a large part
of the temptation to secure ready money through bringing about (245)
fire
losses, by simply banding n o cash to the insured, teut making payments
o n his b e h a l f. Thus if a house is burnt down, the
societies pay the builders, the suppliers, the architects end others. In
some Prussian societies this method has been applied for about two centuries,
the insured would have therefore to conspire with the builders and many
others if he wished to secure ready money, perhaps for paying a burdensome
debt or even to enable him to go on a holiday tour or the like.Such conspiracies are not
u n k n o w n, but the strenght of the discouragement is evident. This
partly explains why the fall in fire-losses in time of war is not as great
in public societies as in private ones. That is, the incentive for increasing
fire-losses, which did not operate during war time in the case of private
offices, bu existed in peace time na ely,t e temptation to secure money
by committing arson, was reduced in pubtic societies, simply because it
as already absent more or less in peace time. This should be taken
into consideration when establishingnew insurance societies in Asia,
more particularly public ones. The insurance conditions should therefore
provide the the indemnity should not be paid directly to the client. The
losses could thereby be reduced by probably not less than one fourth they
could have been in absence of such a clause.

L: TARIFFSIn this respect the experience
of other insurance societies, more especially the preWar experiences of
Russian offices will be useful (see the cited work by Sergowski).In a preceding section we
explained that in the case of under insurance a loan might be granted to
the sufferer from damage. Of course certain limits should be respected
here It might be provided that, for instance, the oan should not exceed
the declared amount of the insurance There is no room for details here.The endeavour to place the
insured in a situation economically correspond~ng to that he occupied before
the loss, above all to replace completely the damaged objects, would be
consistent with letting the insured beer any small losses ahich he is
a b l e to bear it might be therefore provided that from every loss
at least the value of three working days could be deducted end that losses
valued at less than three dayst work would not be indemnified, larger margins
would be frequently practicable. Such a provision would certainy induce
the insured to be more careful with fire end naked lights than he could
be if there ere no such provision. We owe
the first detailed investigations about the eventual effect of such a clause
to the American mathematician Whitney, who submitted them to the International
Congress of Insurance Science at Vienna in 1909 (see vol 3 of the Congress
Proceedings).
According to his figures, the
indemnities for 10.000 Losses relating to dwelling houses sere distributed
as stated in the following table completed by Professor Riebesell of Berlin
University :

1 = Losses in percentane
of amount insured.2 = Average loss, assuming
an insurance amount of 100.000 for every house.3 = Number of losses.4 = Total indemnity for
all losses.5 = In percentage of the
total amount insured.